Discovery Communications (DISCA), the parent company for the Discovery Channel and other television networks, reported a quadrupling of net income in the second quarter. The TV network operator reported net income of $183 million ($.43 per share) versus $43 million last year ($.16 per share). The results also were aided by the sale of half of the Discovery Kids Channel for $46 million. Net income from operations was also $45 million better than the same period a year ago. Overall revenue dipped slightly to $881 million from $885 million, but free cash flow was an impressive $166 million.

Helping to keep ad revenue afloat, the company reported a 12 percent increase in ratings in domestic markets. Furthermore, internationally based subscribers are up 11%. Both of these key growth statistics allowed Discovery to lift ad sales by 1% in an extremely tough advertising market. Promotions such as Shark Week have been huge hits over the years and DISCA they draw big ratings each time: Shark Week is underway as we speak and my DVR is queued up. Discovery is hoping that it can continue its hot streak with a partnership with media mogul Oprah Winfrey and her fledgling network to be available later this year.

Discovery’s President and CEO had this to say about his firm’s outstanding results in the press release,

“…we took several strategic steps to better position the Company including partnering with Hasbro on a new children’s venture and monetizing an underutilized part of our valuable distribution platform. We also considerably strengthened our balance sheet, paying down $772 million in debt and reducing our leverage to 2.5 times, providing us additional financial flexibility. While the operating environment remains uncertain, with a strengthened balance sheet, operational momentum and sustained operating leverage, we expect to continue to deliver on our commitments to shareholders in the second half of 2009.” — David Zaslav

Investors have jumped on the Discovery bandwagon in the last nine months, more than doubling the stock off of its lows in October of 2008. Coincidentally, we initiated coverage on Discovery Communications at just about that time, and like most things at the time it appeared to be oversold. We continue to believe that even after the stock’s excellent performance that it remains Undervalued at these levels. The stock did hit a 52-week high today, but has since come back down to about even trading for the day. We think that the management at Discovery has proven adept at navigating some very difficult conditions and the growth continues to be an impressive part of their story. There is nothing in today’s earnings release that makes us budge from this stance, in fact it just strengthens that notion.

DISCA: We Love Shark Week